IRS Cuts: Good News for Deadbeats?

By Jonnelle Marte

The Internal Revenue Service commissioner is warning Congress that anticipated cuts to the agency’s funding will result in a “noticeable degradation” of services, including audits and efforts to collect unpaid taxes.

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In a letter sent to legislators last week, commissioner Douglas Shulman wrote that if Congress moves ahead with its plan to reduce the IRS’s budget by about $500 million next year, the agency would have to reduce the number of workers in its enforcement department. Such cuts, he added, would lead to a 5% to 8% decrease in collection efforts, including audits, which would reduce revenue by about $4 billion.

But what sounds like good news for deadbeats could be bad for regular taxpayers. Shulman warned that the spending cuts would mean that half of the taxpayers trying to contact the agency for help would get busy signals or will “hang up in frustration.” Responses to letters, including those taxpayers trying to resolve account issues, could be delayed up to five months, he wrote, and small businesses could have more trouble reaching the IRS to work out a payment plan.

To prepare for the cuts being considered, Shulman said he has started reducing the agency’s spending, although he didn’t disclose what specific cuts the agency is making. An IRS spokesman said the agency could not provide additional details on the planned cuts.

For fiscal 2011, which ended Sept. 30, the IRS received $12.1 billion, according to Bloomberg. The House Appropriations Committee has approved a bill with an $11.5 billion budget for the agency, while the Senate’s companion bill has it at $11.7 billion. While neither of those bills have reached President Barack Obama’s desk, tax experts say those levels aren’t likely to change much as the government tries to reduce its spending in light of the debt-ceiling agreement reached in August.